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Residential Rental Properties – Avoid the Disappointment

Posted on February 20th, 2018 by Stuart Clutterbuck

Contained within last year’s 2017 budget were rules that prevent taxpayers from claiming property travel expenses for residential properties. Previously these expenses were deductible if they were related to inspecting your residential investment property, making repairs, collecting rents and so forth.

From 1 July 2017 these expenses are no longer deductible. There are exclusions to the rules, for example, institutional investors & those who conduct a business of providing property management services but for mum and dad investors, this deduction has now been removed.

The Legislation also removes the ability to add these now non-deductible costs to the cost base of the property when working out a capital gain or loss on disposal.

Travel has its normal and ordinary meaning and therefore includes motor vehicle expenses, taxi use, car hire costs, airfares, public transport costs and the like.

In addition to the above, legislation was also passed to limit depreciation deductions for assets in residential premises acquired after budget night ie. 9th May 2017. The amendments deny income tax deductions for the decline in value of previously used depreciating items of furniture and equipment that an entity uses in gaining or producing accessible income from the use of residential premises for the purposes of residential accommodation. As is the case with deductions related to travel, there are some exclusions but the typical mum and dad investor will be caught.

‘Previously used assets’ has its ordinary meaning, thus if an asset comes with the property purchased it cannot be depreciated. This also applies to any subsequent purchase of a second-hand item to be used in the residential rental property. An important distinction to note is if you are acquiring a new residential property from a developer (for example), which includes new depreciable assets a claim for depreciation will be allowable as the assets have not been previously used.

If you have any queries in relation to the above or any other matters related to rental properties, please call our office for assistance.